MERGERS

1
MERGERS ACQUISITIONS

• Leonid Sopotnitskiy

2
Part 1

• Restructuring a business

3
Restructuring activities

• Acquisitions
• Mergers
• Strategic alliances
• Demergers
• Divestitures

• Friendly
• Hostile
• Takeover

• Vertical
• Horizontal
• Congeneric
• Conglomerate
• Accretive
• Dilutive

• Spin-out
• Spin-off
• Disposal

• Joint Ventures
• Minor investments
• Franchising
• Licensing

4
Holding companies in MA
VS -

• Cheaper transaction
• Gain control via majority stake

• Triple taxation
• Minority resistance
• Ineffective managerial decisions

66 INEFFECTIVE
2 to 3
5
ESOP (Employee Stock Ownership Plan)
ESOP-Fund
4. Finance
1. Loan
3. Shares
5. Interest
SPONSOR
Creditor
2. Guarantee
6
ESOP as an MA-tool
Shell company
ESOP-Fund
4. Finance
3. Shares
Subsidiary
SHARES
1. Loan
5. Interest
Parent Co.
Creditor
2. Guarantee
7
Part 2

• Participants

8
Investment Bankers

• Deal clarification
• Consulting services
• IPO

9
Lawyers

• Corporate law
• Antimonopoly law
• MA code
• Tax law
• Pension planning
• Real-estate law
• Securities
• Court experts

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Other participants

• Accountants
• Proxy-hunters
• PR-agents
• Institutional investors (pension funds, insurance
  companies, etc.)
• Arbitrage traders (a.k.a. Arbs)

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Arbitrage trading
SPI
70
10
60
20
40
t
Takeover announcement
Deal successful Shares converted
(1Q)
(3Q)
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Part 3

• HQ behind the scenes

13
Synergy
1 1 3

• Operational effect
• Financial effect

14
Common stimuli

• Market leadership
• Strategy realignment
• Taxes
• Cross-selling

• Empire building
• Managers hubris
• Diversification
• Undervalued assets (q-ratio)

15
Why do MA deals fail?

• Overestimated synergy
• Low integration tempo
• Bad strategy
• Cultural conflicts
• Core-business conflicts
• Oversized targets
• Careless deal clearance (by investment bankers)
• Financing errors

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Part 4

• Acquisitions takeovers

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Friendly acquisitions

• Voluntary General Offering (VGO)
• Deal through board negotiations
• Willfulness of both parties
• Late announcements

-

• Lack of surprise
• Preliminary SPI-growth risk

18
Hostile approach

• Premium per share
• Board Complement
• Equity structure
• Corporate regulations
• Defense analysis

Factor complexity
S U C C E S S
19
Black Knight in action

• Dodging board negotiations
• Direct shareholder contact
• Proxy-fighting (becoming a trustee)
• Preliminary press-release
• Psychological pressure on the board directors
• Various takeover strategies tactics

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Takeover strategies

• Bear hug
• Proxy battles
• Pre-tender concealed buying spree
• Tender offer
• Toehold strategy

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Takeover decision tree
Friendly LOI
Aggressive actions
Y
N
Bear hug
Negotiations
Refusal
N
Y
Negotiations
Proxy battle
Y
Renegotiate
Open market
Tender offer
Court
Complex
Fulfill offer
N
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Reverse takeovers (APO)

• Avoid IPO expenses
• 12-months procedure (i.e. time-saving tool)
• Fundamental changes in business
• Search for an effective floating mechanism

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PIPE deals (Private Investment in Public Equity)
PRIVATE INVESTOR
M A R K E T
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Part 5

• Defense mechanism

25
Possible measures

• Poison pills
• Shark repellents
• Golden silver parachutes

• Green mail
• Pac-man defense
• White knight
• ESOP
• Leveraged recapitalization

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Poison pills

• Preferred stock plan
• Flip-over rights plan (discount option)
• Ownership flip-in plan (11 exchange option)
• Back-end rights plan
• Poison put

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Preferred stock plan
BLACK KNIGHT
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18,5
TARGET
DEAL
MARKET
11,06
S
S
S
S
S
S
P
P
P
25
25
25
18,5
18,5
18,5
8,3
33
8,3
33
33
8,3
1 000000 shares
500 000 P
943 396 shares
1 000000 shares
1 943396 shares
74 VS 26
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To be continued

• Thank you!